2.12 Internal and External Factor Evaluation Matrices

First, Johan identifies the main internal factors of his business. Such factors may include customer service, quality of product, his company location, storage capacity, etc. He lists these factors and categorizes them as either strengths or weaknesses.

Second, Johan gives weight to each factor depending on the importance of each. The weights must be made so that they total exactly 1. Elements of his business such as reputation and market share are naturally his highest weighted strengths and his limited storage capacity weighs in as his most detrimental weakness.

Once appropriate weights are determined, Johan gives each factor a rating. If the factor is a vitally important strength it is given a rating of 4, valuable but not vital strengths are given 3 as a rating, weaknesses which can be treated lightly are rated 2, and important weaknesses that need to be addressed are rated 1.

The weighted score of each factor is determined by multiplying each factor’s rating by it’s weight. The total weighted score is calculated simply by the sum of every factor’s weighted score. An average total weighted score for a company is 2.5. A score lower than 2.5 indicates an internal situation that is weak but a score higher than 2.5 indicates an internal situation that is stronger than average. In Johan’s IFE Matrix , Johan determined that his business had a score above average of 2.76.

An External Factor Evaluation Matrix is performed similarly as follows.

First, Johan identifies the main factors of his market and categorizes each factor as either an opportunity or threat. Such factors might include whether the market is growing or shrinking, the state of Johan’s competition, or economic conditions.

Second, Johan gives weight as to the importance of each factor just as seen previously in the IFE Matrix.

Just as Johan did when performing the IFE Matrix, Johan’s third step is to his EFE Matrix is to rate each factor from 1 to 4. When performing an EFE Matrix however, each rating is a representation of how responsive the firm can be to each factor. A rating of 1 infers a very poor ability to respond to the factor and a rating of 4 shows a phenomenal ability to respond to the factor.

The weighted scores and the average total weighted score are determined exactly how they were in the IFE Matrix example, as we can see in Johan’s EFE Matrix. An average score is still 2.5, below average is below 2.5, and above average is above 2.5.